Airlines on a Binge
The Middle East region, which has registered an air traffic growth of 11% in 2013, continues to outpace the rest of the world and Qatar Today speaks to two major plane makers – Airbus and Boeing – about their plans to meet the growing demand for new plane
Notwithstanding declining oil prices, which may impact the economic growth of their countries, airlines in the GCC region are scouting for new destinations and also adding more to the existing routes in the process. And to keep pace they have been on a buying spree of new aircraft to replace the old ones in their fleet. The economic growth rates in emerging markets such as Asia, Latin America, Africa and the Middle East are outstripping more economically developed regions. One significant effect is that the middle class in Asia is expected to quadruple in size by 2033 whereas globally they will double from 33% to 63% of the world's population.
As a result of increased urbanisation and concentration of wealth, the number of aviation megacities worldwide is expected to double to 91. These cities will be the centres of world wealth creation with 35% of world GDP centred there, and with more than 95% of all long-haul traffic going to, from or through them.
Deals at Dubai Airshow
According to reports, on the opening day of the Dubai Airshow on November 4 last year, GCC airlines entered into deals worth QR364 billion ($100 billion) in just 15 minutes by ordering hundreds of new passenger jets.
In one mega-deal, Emirates and Qatar Airways ordered 200 new Boeing's newly re-launched 777-9X jets while Emirates entered into a deal with the European aircraft manufacturer Airbus to buy the world's largest jetliner, the A380 super-jumbo, according to the reports.
This brought the backlog of 777-9X planes to 225 in the region ,including 25 ordered by Etihad. In all, six airlines from Europe, Asia and the Middle East placed orders for 286 777-9X planes. The production of the 777-9X is set to begin in 2017, with the first delivery in 2020.
For Emirates, December 19 was a red letter day in its history as it flew more than 80,000 passengers on over 240 flights in a single day. This was up almost 23% over last year, according to the airline's booking figures, and the top destinations out of Dubai include London, Bangkok, Mumbai, Singapore, Paris and Karachi.
Middle East is the aviation hub
“The Middle East has become a major centre for air transport, one of growing global importance with its central position geographically, strong economic growth and the world's biggest emerging economies and centres of population within a flight away, Middle Eastern carriers stand to reap the benefits of traffic growth,” says Fouad Attar, Managing Director of Airbus Middle East.
As per the International Air Traffic Association (IATA) passenger forecast 2014, the Middle East is expected to grow strongly (4.9%) and will see an extra 237 million passengers a year on routes to, from and within the region by 2034. “The UAE, Qatar and Saudi Arabia will all enjoy strong growth of 5.6%, 4.8%, and 4.6%, respectively. The total market size will be 383 million passengers,” he says.
Quoting Airbus' Global Market Forecast for the next 20 years (2014-2033), Attar says passenger traffic will grow annually at 4.7%, driving a need for more than 31,350 new passenger and freighter aircraft worth QR16.74 trillion ($4.6 trillion) at current list prices.
Airbus' Global Market Forecast predicts a 7.1% yearly passenger growth rate for the ME over the next 20 years, compared to a global average of 4.7%. The share of passenger aircraft in the world operated by Middle Eastern carriers has doubled in ten years; by 2032 the Middle East region will need more than 2,148 new aircraft.
“The passenger and freighter fleet will increase from today's 18,500 aircraft to 37,500 by 2033, an increase of nearly 19,000 air-
craft. Some 12,400 older, less-fuel efficient passenger and freighter aircraft will be retired in the next 20 years,” Attar says.
Airbus' arch rival Boeing too is aware that the Middle East is a key market for the company and has been concentrating on the region to have a sizeable piece of the pie. It is far ahead of its competitors in supplying new airplanes to the regional airlines.
“We are ready to meet the demand for new planes for the airlines in the region,” says Marty Bentrott, Vice President (Sales) for Middle East, Russia and Central Asia for Boeing. Boeing estimates that the region's airlines will require as many as 2,950 new airplanes worth around QR2.3 trillion ($640 billion) by 2033 and already the operators have been raising finances to replace the old aircrafts with new ones. The company also forecasts a demand for 36,770 new airplanes valued at QR18.92 trillion ($5.2 trillion) globally over the next 20 years, an increase of 4.2% from last year's forecast.
“The region's air traffic growth is led by Qatar Airways, Emirates, Etihad, Saudia and the region's low-cost carriers (LCCs). We are geared to meet the demand and the region has one of the world's fastest-growing commercial aviation sectors and continues to be a key market for us,” Bentrott says.
He says that LCCs have driven the growth of air traffic around the world due to their successful business model, which has grown tremendously over the past two decades, focusing on business and operational practices that drive down airline costs. The practices include operating at secondary airports, flying a single airplane type, increasing airplane utilisation, relying on direct sales, offering a single class product, avoiding frequent flyer programs and keeping labour costs low.
“These tactics help LCCs reduce unit costs by 20-40% compared with network carriers, allowing them to reduce fares, which stimulates traffic significantly. The trend towards growth of the low-cost model is clear. LCCs have grown from 7% of the world market in 2003 to 16% today, and are projected to capture 21% by 2033,” Bentrott says.
The demand for wide-body aircraft is expected to grow as the airlines expand their international footprint and open new markets. “Boeing forecasts that 8,600 new airplanes will be needed to meet this demand. Around 38% of deliveries will be for replacements and 62% will be for growth, nearly 60% of all new deliveries will go to Middle Eastern and Asia Pacific airlines. With the most comprehensive wide-body lineup in the industry, including the new 787-10 and 777X, we are confident that we will meet our customers' needs now and in the future,” Bentrott says.
What has become a hindrance for some of the airlines is the delay in delivery of the
“The region’s air traffic growth is led by Qatar Airways, Emirates, Etihad, Saudia and the region’s low-cost carriers. We are geared to meet the demand and the region has one of the world’s fastestgrowing commercial aviation sectors and continues to be a key market for us.” Marty Bentrott Vice President (Sales) for Middle East, Russia and Central Asia
new planes by the manufacturers.
Qatar Airways Group CEO Akbar Al Baker openly said that the delay in supplying the A380 by three months has resulted in a loss of QR728 million ($200 million) to the airlines. However, Attar declines to comment on the remarks.
“We can only reiterate that the A380 is the 21st century solution for sustainable growth, providing vital extra passenger capacity at congested airports, without increasing the number of flights. The A380 has the lowest seat mile costs in its class,” Attar says and adds that Airbus adapts and adjusts its production rates according to demand and is continuously in close cooperation with its supply chain partners to ensure a smooth production flow.
Even the first A350-900, the first carbon fibre aircraft from Airbus, which was to be handed over to Qatar Airways at Toulouse in France on December 13, was finally handed over on December 22.” Qatar Airways has placed orders for 80 A350-900 planes.
However, the nine-day delay will not affect the schedule of plane's commer- cial launch to Frankfurt on January 15. The A350-900 is expected to rival the 787 Dreamliner and Boeing 777 in terms of fuel efficiency and operational costs.
Dreamliner 787 issues
The Dreamliner's development and worldwide launch were among the most difficult experienced by a commercial airliner. It was originally due to enter service in 2008 but repeated setbacks delayed its first commercial flight until 2011 and sent its cost spiraling to an estimated $32billion.
And the entire global fleet was briefly grounded in 2013 after two fires caused by its powerful lithium-ion batteries.
But even with the Dreamliner 787 reeling under technical issues, major airlines are still placing orders for the aircraft.
Bentrott says the reliability of the 787 has been a top priority for Boeing. The 787 fleet has flown nearly 335,000,000 revenue miles since entry into service.
Nearly 30 million passengers have flown on the Dreamliner and surveys continue to show that it is providing a preferred experience for travellers.
“While we are not yet satisfied with our fleet-wide performance, even though it is above 98% on average, we have made progress implementing a series of component, software and spare parts placement improvements. We will not be satisfied until we are meeting our customers' expectations across the board,” he says.
Boeing's customers, Bentrott says, are confident in the 787's advanced capabilities and have placed orders for a total of 156 planes to date. Of these, 17 have been delivered to Qatar Airways and one has to Royal Jordanian. “Besides these airlines, other 787 customers in the region include Saudi Arabian Airlines, Oman Air, Gulf Air and Iraqi Airways,” Bentrott adds.
“The passenger and freighter fleet will increase from today’s 18,500 aircraft to 37,500 by 2033, an increase of nearly 19,000 aircraft. Some 12,400 older, lessfuel efficient passenger and freighter aircraft will be retired in the next 20 years.”
Fouad Attar Managing Director Airbus Middle East